Getting the best from your pension pot can be a complex business. We explain
where to find professional help

How you turn your pension pot into income is one of the biggest financial decisions you’ll ever make. The new pension freedoms give retired people more choice than ever before, but there are also more pitfalls to avoid.

Getting it right usually requires you to do your homework or take financial advice – or both. Whether or not to seek the help of a financial adviser is a conundrum for many.

Some have no choice in the matter: if you want to move money out of pensions that offer valuable guarantees, such as final salary schemes, you have to get advice first.

Here we describe the main types of advice on offer, including what you can expect to pay and what you should get in return for your money.

Pension Wise: the Government’s free guidance

Before you think about paying for financial advice, Pension Wise should be the first port of call for over-50s. It’s a free service that provides tailored help and helps you understand what options are available. What it doesn’t do is give specific product or provider recommendations. Only regulated financial advisers can do that, which you may wish to pay for further down the line.

You can get Pension Wise guidance online (at pensionwise.gov.uk), over the phone or face-to-face (call 0300 330 1001 to book). Before your session you should find out the value of your pension pot(s) and whether they offer any guarantees or special features. You should also check for any forgotten pensions using the Government’s free tracing service and get a free state pension estimate (visit gov.uk or call 0845 3000 168).

‘Light advice’

If you’ve used Pension Wise and feel you need further help, you might think about seeking regulated advice. Thousands of people with modest pension pots would like some help with retirement planning but wince at paying thousands of pounds for advice. So pension providers are developing “light advice” – no-frills services for a few hundred pounds.

LV=, the insurer, offers an online advice session for £199, but it recommends products only from a restricted list covering 80pc of the market. Once you’ve decided what to do, you have the option of paying LV= a further £499 to set it up.

Hargreaves Lansdown offers a light advice service for £474. Customers get an hour with an adviser and a detailed financial projection, although it stops short of making product recommendations, leaving customers to make up their own mind or upgrade to full advice.

Full advice

Paying a regulated financial adviser to do everything for you can be expensive. But if it leads to you making the best possible decisions, it could pay for itself over the long term. It should give you the comfort that you’re doing the right thing with your money. If something goes wrong it also means you have recourse to the financial ombudsman.

Before choosing an adviser you should shop around for some quotes; £150 an hour is typical. Websites such as Vouchedfor.co.uk and unbiased.co.uk are a good place to start.

According to unbiased.co.uk the average cost of advice for someone looking to convert £100,000 into a cash lump sum or annuity is £1,500. Someone with £200,000 who wants help with estate planning should expect to pay around £3,500.

Your adviser will take into account all aspects of your life and finances to work out a detailed plan with you. You also have the option to pay them an ongoing fee, typically 1pc, to review your position every year.

Alan Higham, head of retirement at Fidelity, a pension firm, said: “Before paying for advice ask yourself if the adviser is going to do something for you that you couldn’t do yourself. They need to be able to explain things in language you understand. If you don’t understand what they are saying but you go along with it anyway, you might want to look elsewhere, because that’s how mistakes are made. Trust your instinct.”

To reduce costs you could do some homework first, according to Karen Barrett, chief executive of unbiased.co.uk.

She said: “The more time an adviser needs to spend getting your details together and figuring out what you want, the more they will charge. Cutting out some of this work could easily take a £3,000 advice bill down to £1,000.”

Advice on a final salary transfer

Because final salary pensions offer very generous guaranteed benefits, the Government has made it compulsory to get regulated advice if you want to move a final salary pension to a flexible arrangement or cash it in.

Not all advisers are qualified for this kind of work and others don’t want to do it, so it can be difficult to find someone to help. Most advisers who are qualified to discuss these transfers will not charge for telling you whether your transfer looks like a sensible option or not.

LV=’s light advice service includes final salary transfers. Tideway Wealth offers the service at a cost of 1pc of your pot, with a minimum charge of £1,000.

Advice on an annuity with a guaranteed rate

If you have a pension worth more than £30,000 with a guaranteed annuity rate (GAR) attached, you’ll also be forced to pay for advice if you want to cash it in or move it to a flexible arrangement.

For a £30,000 policy, advisers’ charges start at about £600, or 2pc (Hargreaves Lansdown). Other firms said they would charge up to £3,000 or 10pc of the fund. Graeme McColgan of Million Plus Financial Planning, a firm that would charge up to £3,000 for this type of advice, said: “The work involved is not dependent on the size of the transfer but rather the complexity of the work involved.”

For a £100,000 policy the cheapest we came across was £950 or 0.95pc of the fund. But several firms charge around £3,000, or 3pc of the fund.